Register
Login:
Share:
Email Facebook Twitter

EXCLUSIVE: Video presentations from MySQUAR, My Pay, Consilium and Kryptonite1 are now available here Watch here

EXCLUSIVE: David Lenigas answers investor questions in a detailed interview about UKOG, Doriemus, LGC Capital, AfriAg and Angus Energy.


RBS Regulatory News (RBS)



Regulatory News for RBS (RBS)


Share Price: 273.40Bid: 273.40Ask: 273.60Change: 0.00 (0.00%)No Movement on Royal Bank Scot
Spread: 0.20Spread as %: 0.07%Open: 273.50High: 277.20Low: 273.10Yesterday’s Close: 273.40





Interim Management Statement Part 7 of 11

Fri, 5th Nov 2010 07:00

RNS Number : 6736V
Royal Bank of Scotland Group PLC
05 November 2010
 

 

Risk and capital management (continued)

 

Market risk 

Market risk arises from changes in interest rates, foreign currency, credit spread, equity prices and risk related factors such as market volatilities.  The Group manages market risk centrally within its trading and non-trading portfolios through a comprehensive market risk management framework. This framework includes limits based on, but not limited to, value-at-risk (VaR), scenario analyses, position and sensitivity analyses.

 

At the Group level, the risk appetite is expressed in the form of a combination of VaR, sensitivity and scenario limits. VaR is a technique that produces estimates of the potential change in the market value of a portfolio over a specified time horizon at given confidence levels. For internal risk management purposes, the Group's VaR assumes a time horizon of one trading day and a confidence level of 99%.  The Group's VaR model is based on a historical simulation model, utilising data from the previous two years trading results.

 

The VaR disclosure is broken down into trading and non-trading. Trading VaR relates to the main trading activities of the Group and non-trading VaR reflects reclassified assets, money market business and the management of internal funds flow within the Group's businesses.

 

As part of the ongoing review and analysis of the suitability of the Group's VaR model, a methodology enhancement to the ABS VaR was approved and incorporated into the Group's regulatory model in 2010. The credit crisis in 2007-2009 caused large price changes for some structured bonds and the spread based approach to calculating VaR for these instruments started to give inaccurate risk levels, particularly for bonds trading at a significant discount to par. The methodology enhancement harmonised the VaR approach in the Group's US and European businesses by replacing the absolute spread based approach with a more reliable and granular relative price based mapping scheme. The enhancement better reflects the risk in the context of position changes, downgrades and vintages as well as improving the differentiation between prime, Alt-A and sub-prime exposures.

 

All VaR models have limitations, which include:

 

·

Historical simulation VaR may not provide the best estimate of future market movements.  It can only provide a prediction of the future based on events that occurred in the time series horizon therefore, events more severe than those in the historical data series cannot be predicted;



·

VaR that uses a 99% confidence level does not reflect the extent of potential losses beyond that percentile;



·

VaR that uses a one day time horizon will not fully capture the profit and loss implications of positions that cannot be liquidated or hedged within one day; and



·

The Group computes the VaR of trading portfolios at the close of business.  Positions may change substantially during the course of the trading day and intra-day profits and losses will be incurred.

 

These limitations mean that the Group cannot guarantee that profits or losses will not exceed the VaR.


 

Risk and capital management (continued)

 

Market risk (continued)

 

The following tables analyse the VaR for the Group's trading and non-trading portfolios excluding Structured Credit Portfolios (SCP) for the last four quarters, segregated by type of market risk exposure, and between Core, Non-Core, Counterparty Exposure Management (CEM) and Core excluding CEM.

 


30 September 2010

30 June 2010


31 March 2010


31 December 2009


Average 

Period 

 end 

Maximum 

Minimum 

Average 

Period 

 end 

Maximum 

Minimum 


Average 

Period 

 end 

Maximum 

Minimum 


Average 

Period 

 end 

Maximum 

Minimum 

Trading

£m 

£m 

£m 

£m 


£m 

£m 

£m 

£m 


£m 

£m 

£m 

£m 


£m 

£m 

£m 

£m 





















Interest rate

50.5 

74.3 

74.3 

38.6 

44.2 

42.8 

60.4 

33.7 


47.5 

54.4 

64.2 

32.5 


38.8 

50.5 

59.8 

28.1 

Credit spread

214.0 

190.8 

243.2 

174.5 

167.4 

203.0 

203.2 

125.5 


148.8 

163.3 

191.5 

113.0 


165.4 

174.8 

194.7 

146.7 

Currency

15.4 

16.7 

26.2 

9.3 

22.6 

21.4 

28.0 

15.6 


18.6 

22.2 

24.7 

13.9 


18.9 

20.7 

25.5 

14.6 

Equity

7.2 

5.4 

17.9 

2.7 

9.6 

6.7 

12.0 

6.6 


11.3 

8.2 

17.3 

6.6 


11.1 

13.1 

19.8 

2.7 

Commodity

8.9 

13.8 

15.7 

3.2 

10.9 

8.1 

15.8 

6.7 


10.6 

10.8 

14.0 

8.3 


14.9 

8.9 

32.1 

6.6 

Diversification


(119.2)




(71.5)





(126.4)





(86.1)























Total

213.1 

181.8 

252.1 

156.1 

165.1 

210.5 

210.5 

120.6 


140.6 

132.5 

204.7 

103.0 


158.8 

181.9 

188.8 

128.7 





















Core

123.8 

115.0 

153.4 

99.6 

103.6 

118.1 

129.0 

81.4 


87.2 

82.4 

145.4 

58.9 


112.9 

127.3 

135.4 

92.8 

CEM

74.7 

73.0 

82.4 

70.4 

52.5 

75.5 

76.5 

30.6 


37.5 

33.6 

41.2 

30.3 


38.5 

38.6 

41.0 

34.3 

Core excluding CEM

84.2 

78.4 

96.5 

72.0 

85.9 

78.6 

104.9 

71.5 


79.5 

73.5 

108.7 

53.6 


93.0 

97.4 

116.5 

70.6 





















Non-Core

135.7 

101.8 

169.4 

97.5 


96.1 

104.9 

108.1 

82.7 


84.6 

87.1 

98.8 

63.2 


78.0 

84.8 

100.3 

58.6 

 

Key points

 

·

The average and maximum credit spread and Non-Core VaR increased overall in Q3 2010 compared with Q2 2010 due to the Group's exit from some highly structured Non-Core positions which, due to their complexity and layering, required unwinding with different counterparties over different periods.  The timing of the unwind led to an increased VaR for a limited time during the quarter. The exit was completed in October 2010.



 

·

The Core VaR remained within the expected range reflecting the day-to-day trading activities.



 

Risk and capital management (continued)

 

Market risk (continued)

 


30 September 2010

30 June 2010


31 March 2010


31 December 2009


Average 

Period 

 end 

Maximum 

Minimum 

Average 

Period 

 end 

Maximum 

Minimum 


Average 

Period 

 end 

Maximum 

Minimum 


Average 

Period 

 end 

Maximum 

Minimum 

Non-trading

£m 

£m 

£m 

£m 


£m 

£m 

£m 

£m 


£m 

£m 

£m 

£m 


£m 

£m 

£m 

£m 





















Interest rate

9.9 

6.8 

24.2 

6.3 

8.8 

10.1 

11.2 

6.5 


10.9 

11.4 

13.6 

8.8 


12.2 

15.0 

16.0 

9.1 

Credit spread

129.1 

119.5 

139.3 

119.4 

139.5 

125.1 

155.1 

123.0 


169.5 

152.7 

227.2 

150.6 


214.8 

209.5 

227.9 

200.5 

Currency

2.8 

2.0 

6.1 

1.5 

2.1 

3.4 

7.6 

0.9 


1.4 

0.9 

4.9 

0.3 


1.6 

0.6 

7.0 

0.5 

Equity

0.4 

0.5 

0.5 

0.3 

0.4 

0.4 

0.8 

0.3 


1.3 

0.8 

3.4 

0.2 


2.8 

2.3 

3.4 

1.7 

Diversification


(22.9)




(22.4)





(13.3)





(31.6)























Total

118.8 

105.9 

126.5 

105.9 

132.3 

116.6 

156.4 

115.0 


164.3 

152.5 

216.2 

145.5 


200.4 

195.8 

212.6 

187.4 




















Core

49.6 

46.0 

58.2 

42.1 

50.7 

31.9 

77.8 

30.6 


93.2 

76.2 

145.7 

76.2 


131.0 

129.4 

140.7 

115.7 

Non-Core

80.4 

76.6 

85.3 

76.2 


84.9 

85.5 

94.7 

70.2 


76.2 

72.5 

79.6 

72.5 


80.1 

72.9 

90.9 

72.9 

 

Key point

·

The overall reduction in total VaR was primarily driven by reduced credit spread risk during Q3 2010 as a result of disposals of some uninsured super senior tranches of CDOs and AFS assets.

 

VaR is not always the most appropriate measure of risk for assets in the non-trading book, particularly for those in Non-Core which will diminish over time as the asset inventory is sold down. To better represent the risk of the non-traded portfolios, the table above analyses the VaR for the non-trading portfolios but excludes SCP in Non-Core. These assets are shown separately on a drawn notional and fair value basis by maturity profile and asset class and are managed on both an asset and RWA basis.  This portfolio continues to be rundown as part of the Group's Non-Core disposal strategy.

 


 

Risk and capital management (continued)

 

Market risk: Structured credit portfolio (continued)


Drawn notional (years)


Fair value (years)


1-2 

2-3 

3-4 

4-5 

5-10 

>10 

Total 


1-2 

2-3 

3-4 

4-5 

5-10 

>10 

Total 


£m 

£m 

£m 

£m 

£m 

£m 

£m 


£m 

£m 

£m 

£m 

£m 

£m 

£m 

















CDOs
















30 September 2010

- 

84.3 

19.3 

99.3 

518.9 

721.8 


- 

79.2 

- 

16.6 

85.5 

177.2 

358.5 

30 June 2010

75.0 

29.8 

20.2 

90.1 

624.2 

839.3 


70.3 

23.3 

17.2 

80.1 

232.5 

423.4 

31 March 2010

42.5 

0.7 

17.1 

16.5 

114.7 

626.2 

817.7 


25.5 

0.7 

15.6 

9.9 

97.8 

208.1 

357.6 

31 December 2009

39.9 

18.8 

17.4 

107.2 

593.5 

776.8 


23.9 

16.4 

3.5 

89.7 

192.7 

326.2 

















CLOs
















30 September 2010

19.1 

35.0    

7.3 

365.8 

793.2 

1,220.4 


- 

17.6 

30.8 

7.1 

324.5 

627.0 

1,007.0 

30 June 2010

20.0 

36.7 

10.8 

438.8 

1,004.5 

1,510.8 


18.3 

31.8 

10.4 

389.9 

810.4 

1,260.8 

31 March 2010

19.8 

19.8 

39.6 

752.2 

1,084.0 

1,915.4 


18.1 

17.9 

35.2 

672.0 

879.6 

1,622.8 

31 December 2009

18.5 

47.1 

684.8 

1,113.6 

1,864.0 


16.8 

41.3 

593.5 

895.6 

1,547.2 

















MBS (1)
















30 September 2010

46.4 

28.8 

5.5 

403.9 

590.8 

1,075.4 


- 

34.8 

26.5 

4.1 

264.6 

379.0 

709.0 

30 June 2010

42.5 

19.0 

38.1 

393.6 

688.7 

1,181.9 


31.4 

17.9 

32.9 

254.5 

419.5 

756.2 

31 March 2010

50.6 

30.9 

436.2 

824.1 

1,341.8 


38.6 

27.0 

273.0 

514.0 

852.6 

31 December 2009

42.3 

36.4 

424.0 

820.0 

1,322.7 


31.2 

28.8 

251.4 

468.4 

779.8 

















Other ABS
















30 September 2010

58.0 

66.5 

210.7 

56.8 

485.1 

547.9 

1,425.0 


50.1 

62.5 

183.4 

52.1 

414.3 

368.2 

1,130.6 

30 June 2010

67.5 

85.0 

297.9 

58.6 

547.8 

607.4 

1,664.2 


61.2 

79.5 

239.3 

52.8 

454.6 

386.8 

1,274.2 

31 March 2010

78.6 

19.8 

192.5 

250.6 

555.5 

604.2 

1,701.2 


70.0 

18.8 

153.6 

221.1 

462.6 

381.2 

1,307.3 

31 December 2009

81.5 

19.4 

99.0 

331.7 

521.5 

572.9 

1,626.0 


67.7 

18.1 

75.6 

275.0 

394.0 

324.9 

1,155.3 

















Total
















30 September 2010

58.0 

216.3 

274.5 

88.9 

1,354.1 

2,450.8 

4,442.6 


50.1 

194.1 

240.7 

79.9 

1,088.9 

1,551.4 

3,205.1 

30 June 2010

67.5 

222.5 

383.4 

127.7 

1,470.3 

2,924.8 

5,196.2 


61.2 

199.5 

312.3 

113.3 

1,179.1 

1,849.2 

3,714.6 

30 March 2010

121.1 

40.3 

280.0 

337.6 

1,858.6 

3,138.5 

5,776.1 


95.5 

37.6 

225.7 

293.2 

1,505.4 

1,982.9 

4,140.3 

31 December 2009

81.5 

59.3 

178.6 

432.6 

1,737.5 

3,100.0 

5,589.5 


67.7 

42.0 

140.0 

348.6 

1,328.6 

1,881.6 

3,808.5 

 

Note:

(1)

Mortgage-backed securities (MBS) include sub-prime RMBS with a notional amount of £476.7 million (30 June 2010 - £562.3 million; 31 March 2010 - £696.6 million; 31 December 2009 - £681.7 million) and a fair value of £316.0 million (30 June 2010 - £349.5 million; 31 March 2010 - £457.7 million; 31 December 2009 - £415.1 million), all with residual maturities of greater than 10 years.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
IMSEADFLESNEFAF






DateSourceHeadlineCategory
10-Oct-17 17:11RNSNotices of RedemptionCompany Announcement - General
05-Oct-17 12:24RNSBlock listing Interim ReviewCompany Announcement - General
29-Sep-17 14:39RNSTotal Voting RightsHolding(s) in Company
29-Sep-17 13:55RNSThe Royal Bank of Scotland N.V. Interim ResultsResults and Trading Reports
27-Sep-17 18:20RNSAllotment and Issue of New Ordinary SharesCompany Announcement - General
26-Sep-17 09:00RNSBank of America Merrill Lynch ConferenceCompany Announcement - General
18-Sep-17 17:15RNSEC formally approves Alternative Remedies PackageCompany Announcement - General
11-Sep-17 13:30RNSBarclays Global Financial Services ConferenceCompany Announcement - General
01-Sep-17 14:35RNSDirectorate ChangeExecutive Changes
31-Aug-17 09:50RNSTotal Voting RightsCompany Announcement - General
23-Aug-17 18:11RNSDividend DeclarationDividends
07-Aug-17 17:43RNSNotice of RedemptionCompany Announcement - General
07-Aug-17 14:21RNSPublication of Suppl.ProspctsCompany Announcement - General
07-Aug-17 07:00RNSRedemption of Non-cumulative Dollar Pref. SharesCompany Announcement - General
04-Aug-17 16:48RNSRedemption of Non-cumulative Preference SharesCompany Announcement - General
04-Aug-17 07:20RNSTechnology & Innovation CommitteeCompany Announcement - General
04-Aug-17 07:00RNSHalf-year ReportResults and Trading Reports
31-Jul-17 14:29RNSTotal Voting RightsHolding(s) in Company
26-Jul-17 16:31RNSUpdate on RBS's remaining State Aid obligationCompany Announcement - General
12-Jul-17 13:34RNSSettlement reached with the FHFA re US RMBS claimsCompany Announcement - General
12-Jul-17 11:00RNSTR-1 Notification of Major ShareholdingsHolding(s) in Company
06-Jul-17 11:03RNSTotal Voting RightsHolding(s) in Company
30-Jun-17 17:38RNSAllotment and Issue of New Ordinary SharesCompany Announcement - General
30-Jun-17 13:24RNSTotal Voting RightsHolding(s) in Company
16-Jun-17 08:19RNSCapital reorganisation - notice of completionCompany Announcement - General
15-Jun-17 18:21RNSRBS welcomes credit rating upgrade by Moody'sCompany Announcement - General
08-Jun-17 14:00RNSDirector/PDMR ShareholdingDirectors' Dealings
02-Jun-17 14:12RNSBlock Listing CancellationCompany Announcement - General
01-Jun-17 10:15RNSDirector DeclarationExecutive Changes
31-May-17 17:36RNSDividend DeclarationDividends


Share Price, Share Chat, Stock Market news at lse.co.uk
FREE Member Services
- Setup a personalised Watchlist and Virtual Portfolio.
- Gain access to LIVE real-time Regulatory News (RNS).
- View more Trades, Directors' Deals, and Broker Ratings.
Share Price, Share Chat, Stock Market news at lse.co.uk






Datafeed and UK data supplied by NBTrader and Digital Look. While London South East do their best to maintain the high quality of the information displayed on this site,
we cannot be held responsible for any loss due to incorrect information found here. All information is provided free of charge, 'as-is', and you use it at your own risk.
The contents of all 'Chat' messages should not be construed as advice and represent the opinions of the authors, not those of London South East Limited, or its affiliates.
London South East does not authorise or approve this content, and reserves the right to remove items at its discretion.